Cracking the Code: Key Drivers of Hotel Cancelations

To provide context for this project set out to find why customers are canceling, and see if they can predict ahead of time who will and won't cancel. For our project, we aimed to investigate booking behavior at hotels, focusing specifically on cancelations. Our team analyzed a datasheet of 119,390 customer bookings for the hotel chain City Hotel and Resort Hotel. Its data is from July 1st 2014 - July 1st 2018.

Average Baseline Cancelation: 37%

Our baseline level of cancelation was 37%. From there we set out to see if there were any areas that had higher levels of cancellation and we found 3 main areas: Wait list, lead time, and deposit type.

Waiting List as a factor for Customers Cancellations:

As the graph shows, there is a major increase in cancelations whenever someone is put on the waitlist.

We compared what months hotels had the highest reservations, and compared that to the average waitlist time, and noticed at the busiest time of the year, there was the lowest amount of customers on the waitlist. This means that the hotels are implementing some form of change to accommodate the busier season.

We can see this concept in practice by comparing the two countries with the highest amount of reservations, we can see that Great Britain has almost no one on the waitlist, and a 20.2% average cancelation rate, while Portugal has a higher rate of people on the waitlist and a cancelation rate of 56.6%.

Lead Time as a factor for Customer Cancellations:

There was also a direct correlation between the lead time (time between when a guest makes a reservation and when they arrive) and average cancelation.

With this graph we can see how an increase in lead time leads to higher amounts of cancellations.

Deposit Type as a factor for Customer Cancellations:

We first analyzed the primary customer type for the hotel chains and their corresponding cancellation rates. Our findings revealed that the majority of customers are Transient guests. However, we also discovered that this group has the highest average cancellation rate compared to other customer types.

Trying to find a reason for these cancellations, we looked at the deposit type. Here we found that overall, the cancelation rate of ‘Non Refund’ Deposits is 99.3%, a staggering statistic.

In conclusion, our analysis highlighted key factors contributing to high cancellation rates in hotel bookings, specifically focusing on waitlist status, lead time, and deposit type. Based on our findings, we recommend extending the successful strategies used during peak summer months to other busy periods, such as late spring and early fall, to reduce waitlist cancellations. Additionally, hotels can reduce lead-time-related cancellations by offering promotions closer to high-demand seasons, encouraging guests to book with shorter lead times. Finally, we suggest reconsidering the use of 'Non-Refund' deposits, as they are associated with an extremely high cancellation rate of 99.3%. By addressing these areas, hotels can better predict and mitigate cancellations, leading to improved customer retention and operational efficiency.